FATCA Top 10 Legal Issues In a Nutshell

Top 10 Legal Issues prepared by the AMCHAM Financial Services Committee
1
Updated Q1 2013
FATCA
In a Nutshell
On March 18, 2010, the Foreign Account Tax Compliance Act of 2009 (FATCA) became U.S. law.
Publication of preliminary guidance (Notices 2010-60, 2011-34 and 2011-53) was issued in 2010 and 2011.
On February 8, 2012, the long-awaited proposed FATCA regulations were issued.
The final regulations were released on January 17, 2013.
So what is FATCA trying to achieve?
Is NOW the time to act?
FATCA is focused on strengthening information reporting and
withholding compliance with respect to U.S. persons who invest through and/or in non-U.S. entities. In brief, the challenge
will be to properly identify U.S. account holders and relevant
revenue sources, collect required documentation, properly report to the IRS providing evidence, as required, and withhold
where applicable.
The deadlines are fast approaching so many actors in the
financial sector have started to prepare for FATCA. The gradual
implementation of the FATCA regulations has been estimated
to take 18-24 months, and there may be imposing needs for
modifications to systems and business processes. Based on
this, the time to act is now if you haven’t done so. The deadline of October 25, 2013, for a Foreign Financial Institution
(FFI) to register with the IRS to ensure inclusion by January 1,
2014, the date in which the 30% withholding on withholdable
payments takes effect on certain U.S. source income for noncompliant FFIs. There is no doubt that prompt action is required by all to analyze their FATCA impact and the necessary
steps for a sound response.
In Luxembourg, FATCA impacts many actors in the financial
sector including banks, administrators, transfer agents, insurance companies, investment funds and other entities with
U.S. sourced income. The impact is very broad and the time
to get ready is short in relation to the complexity of the regulations.
Key Dates
(Diagram 1 – below – timeline for FFIs under IGA model 1; info as of Feb 12, 2013)
FFI
governance
July 15 2013 - IRS FATCA registration portal available (Note 2)
Oct. 25 2013 - Last day to register
for inclusion on the Dec 2, 2013
IRS list of PFFIs and RDCFFIs
Dec. 2 2013 - First IRS list of PFFIs
and RDCFFIs to be published
Jan. 1 2014 - Earliest date that an
FFI can be a Partner Country FI
Due diligence
for pre-existing
accounts
Dec. 31 2014 - Complete
identification and review of
pre-existing high value individual
accounts (Note 3)
Procedures for
new accounts
Jan. 1 2014 - Enhanced account
opening procedures must be
in place to establish the FATCA
status of new accounts (Note 4)
Withholding
(Note 5)
Jan. 1 2014 - Begin FATCA with
holding on U.S. source FDAP
income for NPFIs (Note 5)
Jan. 1 2014 - Cut-off date for
grandfathered obligations (Note 6)
Reporting
1)
2)
3)
4)
5)
6)
IGA: Intergovernmental Agreement
The IRS has committed to making FATCA registration portal available no later than July 15, 2013. Thus,
it could be available earlier.
Due diligence for pre-existing accounts is subject to the application of thresholds.
Dates for withholding on gross proceeds and passthru payments are highly speculative and will be
worked out between the U.S. and FATCA Partner countries in the next two years.
Withholding applies to U.S. source income paid to nonparticipation financial institutions by reporting
FATCA Partner Financial Institutions acting as a withholding QI, withholding foreign partnership or withholding foreign trust. Other reporting FATCA Financial Institutions must provide information necessary
to allow an immediate payor to withhold.
Generally applies to obligations that can produce a withholdable payment. Grandfathered obligation
also include: (1) any obligation that gives rise to a withholdable payment solely because the obligation is
Dec. 31 2015 - Complete
identification and review of all
remaining pre-existing individual
and entity accounts (Note 3)
Prior to Sep. 30 2015 - Reporting
FATCA Partner FI will need to provide required information to FATCA
Partner prior to IGA deadlines in
order for FATCA Partner to be able
to meet corresponding deadlines
(Note 7, 8)
7)
8)
2016 - Reporting FATCA Partner
FI to report to FATCA Partner
Country the name and the aggregate amount of payments made in
2015 and 2016 to NPFI (Note 7)
2018 - Reporting FATCA
Partner FI to obtain and
report TIN of each specified
U.S. account holder for preexisting accounts (Note 7)
treated as giving rise to a dividend equivalent pursuant to section 871(m) and the regulations thereunder,
provided that the obligation is executed on or before the date that six months after the date on which
obligations of its type are first treated as giving rise to dividend equivalents; (2) with respect to foreign
passthru payments, any obligation that is executed on or before the date that is six months after the date
on which final regulations defining the term foreign passthru payment are filed with the federal register;
and (3) any agreement requiring a secured party to make a payment with respect to, or to repay, collateral
posted to secure a grandfathered obligation.
Dates will be provided under legislation or regulations issued by FATCA Partner tax authorities.
For 2013 and 2014 reporting is limited to: name, address, U.S. TIN (date of birth for pre-existing accounts if no U.S. TIN), account number, name and identifying number of the reporting institution, and
account balance or value. For 2015 reporting includes the information reported for 2013 and 2014, plus
the income paid to the account. For 2016 and beyond, reporting includes the information reported for
2015 plus proceeds from the sale of property.